A glaring stimulus waste: Soon at dealers near you

September 8, 2010

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Anyone who purchases a 2011 model electric car should write 100 million thank notes to the U.S. taxpayers who helped pay for it. The federal government’s mandates and lavish subsidies for electric cars would be daft in the best of times. In this grim economic period, the policy is wasteful and counter-productive, like so much else in the 2009 federal stimulus bill.

The 2011 model year electric cars, like the Chevy Volt and the Nissan Leaf, will soon make their debut. General Motors (GM) admits that it will lose money on these vehicles even at prices from $35,000 to $50,000. GM recently announced that the Chevy Volt will have a list price of $41,000. The Volt, however, will help General Motors meet the new Corporate Average Fuel Economy (CAFE) standard. The allegedly zero-emission and petroleum-free electric cars will “allow” automakers to keep selling profitable models with comparatively lower fuel efficiency.

When a Suburban’s and a Volt’s fuel efficiency are averaged across a single vehicle class, Chevrolet can, on paper, attain the new 35 miles per gallon CAFE standard, while looking for profit on less fuel-efficient models which consumers either can afford or prefer regardless of gas mileage. For GM, an automaker rescued from bankruptcy with $50 billion of federal money, this is a pitiful business model. GM, however, did not elect to make money-losing electric vehicles. The federal government demanded the automaker do so in exchange for the bailout money. To ease GM’s pain, the Department of Energy provided a $240 million development grant.

Federal dollars keep flowing for electric cars. The stimulus also provides a $7,500 federal rebate for new electric cars. Several states will offer an additional rebate of $5,000. It gets even better. The home re-charging stations also come with rebates for 50 percent of their estimated $2,000 purchase price. Thus, taxpayers are being forced to give $14,500 to the likely affluent individuals who buy the electric cars.

Your stimulus money is also at work to deploy public recharging stations for electric cars. Not yet chastened by sending I.O.U.s instead of paychecks to state employees, California plans to spend $200 million annually to subsidize the development of 5,000 recharging stations by 2012.

Stimulus money also subsidized construction of factories to produce advanced batteries for the electric vehicles. Compact Power Inc. in Michigan, the ninth of these stimulus-funded factories, opened in July thanks to a $151 million federal grant. Why worry about demand? Industry experts estimate that the current U.S. manufacturing capacity for these advanced batteries is three times greater than projected global demand in 2014. With supply destined to outstrip demand in the near future, expect an outcry for a bailout of this stimulus-created industry. The ethanol industry took just three years to complete the cycle from mandate to subsidy to bailout.

To date, at least 50 different entities have received grants totaling $2.4 billion from stimulus funds tagged for an “electric drive vehicle battery and component manufacturing initiative.” Advocates claim this federal initiative will create jobs, accelerate technology, reduce imports of foreign oil, and improve the environment.

It is unlikely that consumers will buy these cars in large numbers any time soon. The nascent electric car industry would not exist without government coercion and massive spending. Any jobs created in this “green” industry are at great expense to the taxpayer, and thus a drag on the productive economy. The country is in far too much debt – and in far too precarious an economic situation – to afford such speculative, wasteful, and damaging subsidies.